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U.S., global oil split ways Tuesday as output cuts continue, but China lowers growth forecast

Por Myra P. Saefong / MarketWatch

Petroleumworld 03 05 2019

U.S. oil prices ended slightly lower on Tuesday, following a lower forecast on Chinese economic growth that may hurt demand for energy, as well as news that Libya plans to boost crude production following the reopening of its largest oil field.

Prices for global benchmark Brent crude, however, managed to finish modestly higher, getting a lift from ongoing cuts among members of the Organization of the Petroleum Exporting Countries and their allies.

“Oil tossed and turned all day, weighing the return of Libyan oil versus the ongoing commitment of OPEC production cuts,” said Phil Flynn, senior market analyst at Price Futures Group.

West Texas Intermediate crude for April delivery CLJ9, -0.44%  fell by 3 cents, or 0.05%, to settle at $56.56 a barrel on the New York Mercantile Exchange, while May Brent LCOK9, -0.15%  tacked on 19 cents, or 0.3%, to $65.86 a barrel ICE Futures Europe.

Read: Goldman urges caution on commodities, warns rally may fade

News reports said that Libya has reopened the El Sharara oil field in Libya, which had been closed since December. Reuters said Libya's National Oil Corporation expects to see a return to regular oil production from the oil field in the coming days.

“This will increase the oil production of Libya, and thus of OPEC, by more than 300,000 barrels per day. The oil market will then be slightly oversupplied again unless production is cut further or unscheduled outages occur elsewhere,” wrote analysts at Commerzbank, in a note.

Meanwhile, China cut its economic growth target for this year to between 6% and 6.5%. An economic slowdown could hurt demand for energy.

Still, “the downgrade of their forecast was followed by stimulus announcement that will help the domestic economy,” said Edward Moya, senior market analyst at Oanda. “Chinese tax cuts and, eventually, further monetary policy cuts will keep China attractive and should be supportive for commodity prices.”

Prices in recent session have also seen support as members of the Organization of the Petroleum Exporting Countries and their allies continue to cut back on production levels. OPEC members pumped 30.68 million barrels a day in February, the lowest since 2015, according to a Reuters survey released Friday .

Over in the U.S., however, production continues at record levels.

“All-time record production in the U.S. and elevated storage levels have forced the WTI curve into contango, implying the market in the U.S. is oversupplied,” said Robert Yawger, director for energy at Mizuho Securities, in a note. In contango, the futures price of a commodity trades above the spot price.

“Even the OPEC+-sensitive Brent contract is in contango in the front of the curve, implying there is no shortage of crude oil on the international market,” he said.

The American Petroleum Institute will release its weekly data on U.S. petroleum supplies late Tuesday. Official figures from Energy Information Administration are released Wednesday.

Traders are “torn about the inventory outlook this week with a wide range in estimates,” said Flynn.

The EIA is forecast to report a climb of 1.9 million barrels in crude stockpiles for the week ended March 1, according to a survey of analysts by S&P Global Platts. Informa Economics, however, expects to see an increase of 600,000 barrels.

The S&P Global Platts survey also shows expectations for supply declines of 2 million barrels for gasoline and 1.4 million barrels for distillates.

On Nymex Tuesday, April gasoline RBJ9, -0.46%  rose 1.1% to $1.767 a gallon, while April heating oil HOJ9, -0.19%  added 0.1% to $2.016 a gallon. April natural gas NGJ19, -0.03%  added 1% to $2.884 per million British thermal units.

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